Market Overview

US To Stay In Universal Postal Union

US To Stay In Universal Postal Union

Delegates of the Universal Postal Union (UPU) approved a compromise September 25 to allow the U.S. Postal Service (USPS) to raise international postal rates on July 2020 to 70 percent of what USPS charges to process domestic parcels and mail, a decision that will keep the U.S. in the UPU despite year-long threats to withdraw from the 145-year-old Union by October 17 if global postal pricing wasn't reformed.

Under the plan, USPS' terminal dues (UPU lingo for what a destination post charges the origin post for processing, handling and delivery to addresses inside the country), can be raised by 1% a year until it hits a cap of 80% of domestic charges, subject to conditions. Foreign postal systems will be required to set their own rates beginning in 2021. However, any 2021 increases cannot be more than 15% above 2020's rates, and the 2022 rates cannot be 15% higher than the 2021 rates. Non-U.S. posts can move to what is known as a "self-declare" regime earlier if they so choose.

The scenario preferred by the United States, in which all countries would have abandoned the terminal dues system in favor of "self-declared" pricing by next year (in which they could charge foreign and domestic users the same rates), was rejected by UPU delegates on September 24.

The vote by acclamation in Geneva means that international shipping rates to the U.S. will rise to levels comparable to those charged for domestic shipping. Under the terminal dues program in effect worldwide since 1969, the origin post office typically pays a sizable minority of the costs of parcel and mail processing to the U.S. The USPS absorbs the remainder.

The Trump administration has made no secret of its desire to reform postal pricing in general, and has framed the dispute in the light of the U.S.-China trade war, citing the status quo as another example of how China has gamed the global commerce system to its advantage.

The U.S. has argued that China Post pays artificially low dues because it is still considered a developing nation and is allowed to receive below-market rates because its postal network is purportedly primitive. By contrast, developed nations like the U.S., which handles about half the world's mail, has long paid higher postal rates to its developing country partners. The terminal dues scheme distorts the market, harms millions of businesses and consumers, and because it was formed 50 years ago does not reflect current global realities, especially when it comes to countries like China which can hardly be considered a developing country today, according to critics.

Has the U.S. exited the multi-lateral body, it would shift to negotiating bilateral agreements with each country it wanted a postal relationship with. This could have created a chaotic situation as technically USPS would not be able to work with any country until the U.S. reached an agreement with that government.

Paul F. Steidler, senior fellow at The Lexington Institute, a think-tank that strongly advocated for the administration's reform position, said that other countries will likely be pushing for additional reforms in the coming years, and that they are likely to have strong U.S. support especially if President Trump is re-elected. The ideal scenario would have been a uniform move to self-declared rates sooner rather than later, "but today's action works well, especially over the coming years for the U.S.," Steidler said.

The U.S. Chamber of Commerce, the world's largest business group with more than 3 million members, also lauded the results. "The administration deserves a tremendous amount of credit for their leadership in tackling an antiquated, market-distorting global pricing arrangement that for too long has seen the United States footing the bill to deliver the rest of the world's mail," said Sean Heather, the U.S. Chamber's senior vice president for international regulatory affairs, "With this new arrangement, the United States is free to move to self-declared rates, while putting the rest of the world on a similar path." 

Just as important, Heather said, is that the U.S. remains in the UPU to continue the fight for additional reform initiatives.

Image Sourced from Pixabay

Posted-In: Freight Freightwaves USPSNews Markets General


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